Every silver lining has a dark cloud, or vice versa. Last year’s record trade deficit announced Friday, for example, underscores the pain inflicted on some segments of the U.S. economy by a flood of cheaper goods from cash-strapped foreign countries.
But that same flood of goods has helped keep retail prices low in this country. The government also announced Friday that the consumer price index rose much less than expected in January, meaning that inflation isn’t lurking on the horizon, even as Americans cheerfully spend their money.
Regardless whether analysts adopt the good-news or the bad-news interpretation, virtually everyone agrees that the statistics paint a sobering picture of economies abroad, particularly in Asia, Russia and Brazil.
“The challenge is to promote a return to solid economic growth overseas that will benefit everyone,” Commerce Undersecretary Robert Shapiro said.
The 1998 trade deficit of $168.6 billion was up 53 percent from $110.2 billion in 1997, the Commerce Department said. The previous record was $153.3 billion in 1987.
Economists were surprised, however, that the deficit for December was only $13.79 billion, compared with $15.26 billion in November. Conventional wisdom on Wall Street had expected December to show a trade deficit of about $15.8 billion.
Some analysts said the surprise drop in December could signal that the U.S. economy overall grew at a faster rate in the fourth quarter last year than had been expected; those figures haven’t been announced yet.
But others saw December as a blip that won’t reverse the overall trend toward an even bigger trade deficit in 1999. To bolster that view, they note that, although imports declined in December, so did exports, which highlights pockets of weakness in the U.S. economy.
Steelmakers have made formal complaints of dumping by foreign competitors, and farm-dependent companies like Deere & Co. have seen earnings drop sharply as agriculture prices sag. Economists don’t see any turnaround in this scenario.
“We saw a fairly sharp drop in imports, but exports in general remain weak as the dollar remains relatively strong and many economies are experiencing softness,” said Rick Egelton, deputy chief economist at Bank of Montreal.
In December, the U.S. exported $78.5 billion worth of goods and services, down from just under $79 billion in November. Imports fell to $92.28 billion from $94.2 billion in November.
For the entire year, exports were down as well, to $931.3 billion. It’s the first time since 1985 that the value of U.S. exports declined.
Imports, on the other hand, hit a record $1.10 trillion last year.
The biggest chunk of the trade deficit was with partners in the North American Free Trade Agreement, Canada and Mexico. The total trade deficit with NAFTA was $34.2 billion last year, up from $30.98 billion in 1994.
The deficit with Canada was $18.54 billion last year, compared with $16.43 billion in 1997.
For all of 1998, the deficit with Mexico was $15.7 billion, up from $14.55 billion in 1997.
The trade gap with Japan rose to $64.1 billion last year, the second-highest ever, behind $65.7 billion in 1994. In 1997, it was $56.1 billion.
The deficit with China was a record last year, $56.9 billion, up 15 percent from $49.7 billion in 1997. That’s the biggest gap the U.S. ever has reported for any country other than Japan.
For many consumers, the trade deficit merely means a plentiful supply of cheap foreign-made goods. And, with consumer prices rising only modestly, Americans have had money to spend.
The consumer price index rose a mere 0.1 percent in January, the Labor Department said Friday. The core portion of the index, which doesn’t include volatile food and energy prices, also rose only 0.1 percent.
Food prices, which make up 15 percent of the total CPI, rose 0.5 percent in January, but that was offset by lower prices for clothing, fuel oil, electricity and natural gas. Housing prices fell 0.1 percent in January, the first decline since February 1986.
Prices rose in January for medical care and airline fares.
Many analysts had expected the index–a widely used measure of inflation–to increase by 0.2 percent in January. For the 12 months ending in January, the CPI rose 1.7 percent. The figure was up 1.6 percent for calendar year 1998, a 12-year low.
